Delaware and Maryland utility commissions have one more shot to convince electric grid regulators to lower the cost of the Artificial Island Transmission Line. Governors Markell and Hogan have joined forces to fight the burdensome cost of this project, but a new approach is needed. If we want to win this fight we need to negotiate using an alternative approach. More local power generation could replace the transmission line. This could lead to lower electric rates instead of higher rates, to a more robust economy, and to improved electric reliability.

The Artificial Island project is a technical response to importation of power. Maryland and Delaware are the second and fifth highest electricity importing states in the country. In 2015 Maryland imported 41% of its power, and Delaware imported 32%.

Importing power lowers electric grid reliability. It also adds cost. Regional grid manager, PJM Interconnection, is responsible for maintaining reliability with a combination of pricing mechanisms, and transmission line policy. There are line charges to compensate for longer power transmission distances, congestion charges to encourage lower peak demand, and capacity charges to encourage more local generation. See the graph below to see how these premiums can go. These premium charges roughly equal the added monthly costs of the proposed transmission line, are already added to our electric bills, and most of the cost will continue even if the new transmission line is built!

So, how do we boost local generation? Start by asking electric generation and distribution companies already invested in the state what state policies would encourage more generation. State policies led to lower local generation in very real ways and changed policies can help reverse the trend. Prepare to kill some sacred cows when we hear the answers.

Maryland and Delaware are the only two states in the thirteen state PJM region with a tax on carbon dioxide emissions from power plants. The cost of that tax is passed on as a hidden tax on electric bills. Our generating facilities burning coal and natural gas have to charge more, and lose bids to supply power. Consequently, local power plants operate less frequently. For example, the Indian River power plant in Millsboro, Delaware, is only operating 20% of the time compared to an average of 55% for coal fired plants nationally.

The tax was designed to reduce emissions but all it has really done is shifted the emissions out of state, and discouraged power plant construction locally. The revenue was supposed to be used for energy efficiency and renewable energy projects, but after a decade of work only a quarter of annual tax revenue is being spent on such projects. Ending the tax would lower electricity prices and would allow more power to be generated locally.

In Delaware we only need to build the equivalent of three to four new power plants to become self-sufficient. Calpine recently completed a new natural gas fired power unit in Dover and has the permits needed for a second unit. What incentive does Calpine need to build the second unit?

Exelon recently acquired Delmarva Power, the state’s largest electric distribution company, and is one of the largest generation companies in the nation. A decade ago distribution companies owned all the generation facilities as well with a guaranteed rate of return regulated by the Public Service Commission. Delaware and Maryland joined a handful of other states in deregulating the price of generated power thinking this would increase competition and lower electric cost. The actual result was the sale of generating facilities and a 70% increase in electric rates in the deregulated states. Partial reregulation might encourage distribution companies to build at least some new generation capacity.

Exelon is one of the largest builders of large scale solar farms in the country. A little known fact is utility scale solar is now essentially competitive with conventional power plants during high demand daylight hours. Delaware policy has emphasized building smaller scale systems that actually add cost to our electric bills. Yes, in this case bigger is better and a policy change is needed.

Land acquisition is a barrier to building more solar. The state could offer marginal state owned open space land for long term lease for solar farms to lower start-up costs. The revenue could be used for state park operations.

No doubt a dialogue to boost local power generation would uncover more opportunities. The result would not only avoid the added cost of the Artificial Island project but might lower existing electric rates by as much as 15% removing a barrier to job creation, and could lead to up to a billion dollars in new construction projects.

Just last week Sussex County officials made it clear they intend to rewrite local ordinances on how and where food vendors may operate in commercial zones. Basically, Sussex wants to make it easier for food vendors to file their paperwork and operate in the county.

“Under the current county ordinance, it can take 10 months or more to acquire the proper approvals. Sussex County Administrator Todd Lawson said the process could be cut to a few days, and the cost dramatically reduced.”

Food vendor trucks face opposition from brick-and-mortar stores, who generally dislike the idea of food trucks moving around. A lot of this is regulation; restaurants are heavily regulated operations and the assumption is that food truck vendors are like “fly by night” salespeople who just show up and sell food without going through the same red tape and regulations as the stores. They, and folks who have a general mistrust of businesses perceived to be unregulated, frequently put pressure on local and county municipalities to make the cost of entry very high for food truck vendors. The result is protectionalism for brick-and-mortar stores and a loss of job opportunities for folks whose business might be a hot dog or vegetable stand by the beaches or off Route 1 during the summer tourist season.

A reasonable amount of regulation is necessary to make sure all businesses are playing by the rules. For example, checking to make sure a business is legally registered and has not been found to be using unsanitary conditions to produce or sell food is reasonable. However, we have more faith in the marketplace than in government administrators to determine the safety of a food product and a lot of government oversight is frankly unnecessary. The food vendor businesses should not be barred from entry, and we’re pleased to see Sussex County is making steps to ensure a uniform and simplified registration code for food truck and produce stand businesses to be able to sell their products.

2015 will soon be upon us and for those who are passionate defenders of freedom and liberty our work just goes on when the clock strikes midnight. Here is CRI in review and our goals for 2015:

Dave Stevenson’s lawsuit against DNREC and former DNREC Secretary Collin O’Mara is still ongoing. Dave and the other three plaintiffs, including CRI Director John Moore, won standing to continue their lawsuit. We will refrain from making a prediction on a court ruling less we jinx the lawsuit but we are optimistic the Plaintiffs will win. This is because in order to get standing the Plaintiffs had to prove they had a valid reason to sue in the first place, such as being aggrieved by the Defendants actions. Winning means stopping DNREC from changing the rules on how many carbon permits can be sold at carbon auctions, saving Delaware taxpayers over $100 million a year in increases in utility bills.

We testified in favor of HB353, the Parent Empowerment Education Savings Account Act (PEESAA). Jim Hosley, our former CEE Director, spoke in favor as did a dozen Wilmington parents and grandparents (and one student!) and the leaders of Tall Oak Classical Academy. The bill was tabled in the House Education Committee, a move we are unfortunately not surprised by. However, we hope 2015 will be a better year as more and more people realize the need to improve Delaware’s education system, and the only effective way to make the changes our students need to be prepared for the future is to provide parents with school choice options to do what’s best for the child. CRI will always maintain the belief that parents and/or legal guardians can make a better choice about their children’s education than politicians and bureaucrats in the state Department of Education.

We brought in Dr. Bartley Danielsen, business and economics professor from North Carolina State University to keynote our Sixth Annual Dinner. Dr. Danielsen has proposed a theory tying in environmental benefits to school choice. The basic theory is, parents moved to the suburbs to flee poorly performing public schools which left a lot of people uneducated and unable to find respectable work, and many turned to crime as a result. His theory is if inner city schools were to improve their quality, many families would move back to the cities from the suburbs and the result would be a reduction in traffic and environmental pollution from people driving from the suburbs to the cities. View is presentation here and here

In addition to these challenges, we still have issues Delaware must resolve in order to improve our economy:

End to the prevailing wage which makes public construction costs so expensive many end up getting no work at all. See: Rockwood Museum.

A Right to Work law for Delaware. Union leaders are pushing the “scab” theory that somehow union members will drop out and reap all the benefits the union “works” to get. We have responded by noting that a) manufacturing businesses have responded by moving factories elsewhere, depriving Delawareans of job opportunities. See: loss of auto industry, Valero plant, Evraz Steel plant, Georgia Pacific plant. b) as a moral issue, should union bosses have the right to take someone’s money just because someone works at a particular location? What if the union bosses don’t serve their member’s needs, such as organizing or donating to political causes or candidates the members don’t support?

We wrote: “While in the short run unionization may force wages up for those involved, in the long run closed shops reduce capital spending and induce the out-migration of jobs and workers.”

tax reform. Delaware is one of just five states with a gross receipts tax (tax on sales, even before factoring in profit/loss and expenses). Three of the other four don’t have an income tax and the only state with both like Delaware is Virginia who has lower tax rates. Coupled with high corporate and personal income taxes while Nevada and North Dakota compete with us for corporate business, and without reforms we will see money and jobs leave the state at even higher numbers.

Merry Christmas, Happy Hanukkah, Happy Holidays, and a Happy New Year to all. Let’s be thankful for a good 2014 and hope for better things in 2015.

Earlier this week Business Insider UK published an article titled, “Conservatives will hate this: Proof That Government Spending Cuts Hurt Economic Growth”. From the article:

“… austerity subtracted about 0.76 percentage points off the real growth rate of the economy between the middle of 2010 and the middle of 2011. If real government spending had remained constant at mid-2010 levels and everything else stayed constant, (yes we know these are big assumptions) the US economy would now be about 1.2 per cent larger.

There’s a secondary conclusion, too: War is good (economically), it turns out.”

They provided a graph (created by Matt Klein of the Financial Times) with data from the U.S. Bureau of Economic Analysis (BEA) “proving” that Keynesianism works. Without public spending, the author argued, our economy can’t grow.

Enter the Foundation for Economic Freedom, whose founder Leonard Reed once published the famous short story “I, Pencil.” You absolutely should read this, by the way. An economist named Robert Murphy points out the fallacy in the calculations made for the graph above:

“Edwards (the author of the Business Times UK article) seems to think that the above chart shows at least a correlation between government spending and economic growth. After all, he wrote that the BEA chart “seems to show that government has a pretty straightforward effect on GDP.” But… the chart does nothing of the kind.

Look carefully at the legend. The various colored rectangles are different components of government spending. Specifically, the rectangles indicate how the change in each component — positive or negative — relates to the change in overall GDP. The black line is not GDP growth, but is instead the sum of the various components of government spending… if we take the BEA’s word for how much each component of government spending contributed to GDP growth in each quarter, then we can stack those numbers on top of each other and even add them up! Contrary to Edwards, the FT chart doesn’t “show” anything at all, except that the BEA each quarter announces how much various components of government spending contributed to, or subtracted from, GDP growth.

After this discussion, we can see why pretty charts from the FT showcasing government spending’s “contribution to GDP growth” quarter by quarter don’t really mean anything. It’s the same for the ex post “empirical” analyses that concluded that the Obama stimulus package “saved or created” such-and-such million jobs. The underlying models that generate these estimates assume a Keynesian world, and thus cannot test whether the Keynesian model is correct.”

Even though the government prints and issues money, it’s the private sector (both businesses and consumers) who determine the value of a good or service. The government can only run on money taken from the private sector; printing into eternity is Quantitative Easing, which causes inflation if too much is printed. So they tax or borrow it from the people. If government spending really did save economies, both Delaware and America would have people making record amounts of money instead of seeing wages stagnate. The Federal Reserve would not have to continue holding interest rates low in order to convince people to buy things like homes or cars or take out student loans.